| NEW DELHI
NEW DELHI Feb 12 India's industrial production
unexpectedly shrank for a second straight month in December,
weighed down by weak investment and consumer demand, casting
doubt on Finance Minister P. Chidambaram's view that
Asia's-third largest economy is showing signs of recovery.
The index of industrial production (IIP) fell 0.6
percent annually in December, data released by the Central
Statistics Office showed on Tuesday.
A Reuters poll of 24 economists had expected growth of 1.1
percent, after output shrank 0.8 percent in November.
Manufacturing output, which accounts for the bulk of
industrial production and contributes about 15 percent to
overall gross domestic product (GDP), fell 0.7 percent in
December from a year earlier.
"What is clear is that any meaningful industrial recovery is
eluding us. Demand destruction is far more well entrenched than
we thought," said Sujan Hajra, chief economist at brokerage firm
Anand Rathi in Mumbai, who said he now sees GDP growth next year
of 5-6 percent.
Preliminary data from India's statistics office last week
predicted growth of 5 percent for the fiscal year ending in
That was worse than anticipated and triggered an angry
response from Chidambaram.
Chidambaram said the Central Statistical Organisation had
used "dated data" and argued that GDP growth was following an
upward trend in a sign of revival. He reiterated his view that
5.5 percent growth was possible.
"We can recapture the magic of 2004-08. The average growth
was 8.5 per cent during that period," he said on Saturday.
"Why should we, without any reason, denigrate our own
performance and record? I have no doubt in my mind that we will
come out of the trough and we will climb back to a growth rate
of between 6-7 percent next year," he said.
Chidambaram is under political pressure to unveil a
growth-oriented budget on Feb. 28 for the next fiscal year, as
the government of Prime Minister Manmohan Singh gears up for an
election due by early 2014 at the latest.
But he is also faced with the arduous task of trimming a
swollen fiscal deficit that has put India's investment-grade
credit rating in peril. He has already ordered spending cuts in
welfare, defence and road projects for this financial year.
Critics warn that at a time of low growth, lower spending
risks deepening the slowdown without helping the deficit-to-GDP
RATE CUTS MAY HELP
The Reserve Bank of India reduced its policy interest rates
by a widely expected 25 basis points on Jan. 29 to spur the
economy, and investors hope slower price rises will lead to
"Despite incremental efforts we are still staring at a weak
growth print," said Jyotinder Kaur, economist at HDFC Bank.
"We expect a rate cut in March as growth is consistently
surprising on the downside while the pace of CPI (consumer price
inflation) has stabilised."
Consumer price inflation inched up to 10.79
percent in January from 10.56 percent a month ago, according to
other data on Tuesday.
January wholesale price index data, which the Reserve Bank
of India gives more weight to in setting policy, is due on
Friday. The index for December rose 7.18 percent, the slowest in
(Reporting by Arup Roychoudhury; Editing by Rajesh Kumar Singh
& Kim Coghill)